Apple clears Jobs, but says phony records created

Apple Computer filed much-anticipated reports with the U.S. Securities and Exchange Commission Friday (Dec. 29), saying its CEO Steve Jobs committed no wrongdoing in its options backdating scandal but that evidence surfaced of phony records that had been created to show a directors meeting that had never taken place.

The Cupertino, Calif.-based computer maker also said it would reduce its reported earnings for fiscal years 2004, 2005 and 2006 by a total of $21 million to account for non-cash compensation to executives. In a separate press release, Apple said it would take a total non-cash compensation expense of $84 million for all years involved in the options activity.

Two members of Apple's Special Committee that investigated the options mess, former vice president Al Gore and one-time IBM CFO Jerry York, issued a separate, prepared statement that stood behind Jobs.

"The special committee, its independent counsel and forensic accountants have performed an exhaustive investigation of Apple's stock option granting practices," Gore and York said in the statement. "The board of directors is confident that the Company has corrected the problems that led to the restatement, and it has complete confidence in Steve Jobs and the senior management team."

The special investigative panel of Apple's board determined that "a number of grants for which grant dates were intentionally selected in order to obtain favorable exercise prices." It said Jobs was aware of or recommended some of those grant dates, but wasn't aware of their accounting implications and didn't benefit financially from the activities.

A key finding in Apple's 10-Q quarterly report and 10-K annual report is that a stock options grant of 7.5 million shares to Jobs in 2001 was entered into company records as having been approved by Apple directors on Oct. 19, 2001.

"The approval for the grant was improperly recorded as occurring at a special Board meeting on October 19, 2001," Apple reported in the SEC filings. "Such a special Board meeting did not occur. There was no evidence, however, that any current member of management was aware of this irregularity."

The stock options to Jobs were eventually cancelled and replaced by another grant of restricted stock.

"The Special Committee (of Apple directors) also found that the investigation had raised serious concerns regarding the actions of two former officers in connection with the accounting, recording and reporting of stock option grants," the Apple filing said.

Apple did not identify the former company executives.

The company posted its tardy reports with the SEC on a deadline imposed by NASDAQ, to either file the mandatory reports with regulators or be delisted from its stock exchange.

According to the company reports, the directors' probe of the options issues was an extensive one. Investigators spent more than 26,500 "person-hours" digging into company records and accounting, and searched more than a million electronic and physical records, according to the SEC filings. More than 40 past and present Apple executives were interviewed, the company said.